The Prince of Wales emphasised that there has to be ‘a move to net zero ambitions on the underwriting side, so that insurance companies can take action and drive change with their clients across the economy’
The latest report on the industry’s ClimateWise Principles has hailed the significant progress insurers and brokers have made to disclose their preparedness and response to climate change. However, the news is tempered by calls for the industry to do far more.
HRH Charles, Prince of Wales, who launched the initiative 14 years ago, said progress remains too slow and the industry needs to turn its attention from the assets they hold to the risks they broker and underwrite.
The ClimateWise Principles Review 2020 was published this month by the University of Cambridge Institute for Sustainability Leadership (CISL); it reported a significant increase in average scores for its members’ disclosure efforts.
What are the ClimateWise principles?
The ClimateWise Principles support ClimateWise members to disclose their specific response to the risks and opportunities of climate change to the financial markets.
The seven principles are:
- Be accountable.
- Incorporate climate-related issues into strategies and investments.
- Lead in identification, understanding and management of climate risks.
- Reduce the environmental impact of business.
- Inform public policy making.
- Support climate awareness amongst customers and clients.
- Enhance reporting.
The annual assessment of the integration of the ClimateWise Principles across members’ business activities is based on members reporting their progress, which is independently reviewed by Deloitte.
It highlights the overall progress being made by the ClimateWise community and provides members with individual feedback, scores and rankings that allow them to benchmark progress against their peers and helps inform the development of members’ responses.
Last year was the second year of reporting in full alignment with the Recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).
The average score went from 55% in 2019 to 65%, alongside a 25% increase in membership numbers as seven new firms joined in 2020, with the majority reporting against the Principles for the first time.
Insurance increasing resilience
While the report hails the steps companies have already taken, the insurance industry has been told it must do far better, with HRH Prince Charles believing progress is too slow.
Writing in the report, the Prince of Wales said the industry needed to look to its client base alongside its efforts to decarbonise assets.
“As I have tried to indicate for many years, the insurance industry has a key role to play through its understanding of physical and transition risks: as a significant asset owner, through its innovative underwriting and through engagement with its clients across the global community,” he wrote.
“To mark 2021, as part of my Sustainable Markets Initiative, I launched the Terra Carta to provide a roadmap to 2030 in the pursuit of an ambitious and sustainable future, one that will harness the power of nature, combined with the transformative power, innovation and resources of the private sector.
“For what it is worth, from the point of view of the impact of the climate and biodiversity crises, I cannot help feeling that as understanding of climate risk improves, the insurance industry will try to increase its own resilience to those risks through new restrictions and coverage, as has happened in other previous insurance crises.
“Therefore, if I may say so, to move forward amongst [the] many issues we face, three things are critical.
“Firstly, a vital part of this group’s mission and work streams is to innovate products that address climate change. Secondly, the insurance sector needs to insist on better construction methods with inbuilt resilience to natural catastrophes. Thirdly, there is an urgent need to have well organised and rapid post-event responses.”
He added that 14 years after the group was created, it was “very pleasing” to see a strong increase in the average ClimateWise Principles score over the past year, reflecting the action being taken across the industry.
“But I fear that progress is far too slow and must be expedited to ensure that our economy is in harmony with nature’s own economy,” warned Prince Charles. “Without this, the accumulating cost to our lives and prosperity will be too great to bear.”
He also issued a call for the market to do more on its risk selection.
“Having seen engagement on the transition to net zero from the asset side of the business, we now need to see a move to net zero ambitions on the underwriting side, so that insurance companies can take action and drive change with their clients across the economy,” Prince Charles concluded.
His views were backed by Dominic Christian, chair of ClimateWise and global chairman, reinsurance solutions at Aon.
“Mandatory TCFD disclosure is coming and our members are building on their decade of experience of voluntary disclosures under ClimateWise,” he explained. “I am delighted to see our average score increase by 10% this year, reflecting both the goals of our growing membership and wider changes in the disclosure landscape. Yet, we know the path is long and progress must rapidly be made.”
Christian continued: “In the year which also became the joint warmest on record and in which we saw atmospheric carbon dioxide levels hit an all-time high, we have experienced first-hand that resilience is more critical and pressing than ever for the security of our society.
“The first step in building resilience in the face of a changing climate is developing an enhanced understanding the potential consequences we face.”